Online Auction Professionals That Will Sell Your CRE Asset

When owners offer a commercial real estate (CRE) asset for sale through an online auction platform, they work with a series of professionals that take them through a systematic process that involves collecting critical documents, marketing the asset, soliciting investor feedback, honing pricing, conducting a live online auction and closing the sale. On a platform like Ten-X (purchased this year by CoStar, the publisher of LoopNet) a seller is supported by the following professionals:

• Real Estate Broker/Listing Agent
• Business Development Team
• Marketing Team
• Asset Manager
• Auction Manager
• Contracts and Closing Team

LoopNet spoke with Kim Phamvu, product manager at Ten-X, about the professionals that facilitate online CRE auctions on the site.

The listing broker does not work directly for Ten-X but is an integral part of the sales process. Their role is largely similar to the one they play in a conventional sale such as preparing the offering memorandum and advocating on behalf of the seller by conducting tours and answering questions about the asset and the market. According to Phamvu, “Ten-X requires a broker for every listing because the broker is the expert on the property and can provide detailed information to interested buyers.” Ten-X will not take on any property without a broker attached to it. “So, if a seller brought us a deal without a broker, we would make a recommendation on the listing broker,” Phamvu said. Ten-X will typically recommend a broker that is focused on the market where the asset is located and is familiar with the property and local market conditions.

Working with a seller and their broker, the Ten-X business development team sources the sale, works with an internal group they call the “intake team” to collect documents and prepare the asset for sale, and oversees execution of the marketing agreement. “Our business development team meets with sellers and/or brokers to identify assets to be listed for sale on the platform,” Phamvu said. “The majority of their workday is spent meeting potential clients, touring sites and identifying opportunities, educating the sellers on what we do as a platform, how our auction format works and how it benefits the seller.”

Gathering documents. The seller must provide all customary documents to the intake team, such as financial statements, leases and property conditions reports so potential purchasers can conduct due diligence (risk assessment) relating to the purchase of the asset. “We order photos as well as third-party reports like environmental and property condition assessments if the seller would like us to do that on their behalf,” Phamvu said. Ten-X pays for the third-party reports upfront and the seller reimburses Ten-X once the asset sells. If the asset does not sell, the asset can be offered for sale at a future auction if the seller chooses or it can be taken off the platform. If the asset doesn't sell, the seller is not responsible for reimbursing those costs.

Executing the marketing agreement. Additionally, the seller must sign a marketing agreement with Ten-X that includes property details, the reserve price, and the number of days in the marketing and “tail” periods. A tail is a typical provision in agreements that enable brokers to be paid, should a seller pull an asset from the market at the last minute then sell it to someone directly or through a different broker.

This agreement also outlines details relating to a broker co-op, in case the purchaser is represented by a broker, stipulating the percentage allocated to each broker and who will pay it. Also specified in the agreement are the listing broker, escrow/closing agent, the title provider and which purchase agreement will be used. Specifics about who will provide the title report, environmental studies, property conditions reports and other disclosures are also included.

Once the marketing agreement is signed, the marketing team is notified, and they begin putting together the promotional material for the asset that includes print and digital marketing collateral and email blasts that are sent to potential purchasers. All outreach to the Ten-X buyer pool is tailored based on investment criteria established by each registered buyer on the Ten-X platform.

The marketing period extends from the time an asset goes live on the website until the beginning of the auction and generally comprises 45 days. An asset can be prepared to be marketed in as quickly as 48 hours. However, this process typically takes two weeks and depends largely on the seller’s ability to provide the necessary due diligence documents.

Referring to the seller dashboard, Phamvu said that usually when an asset first goes live, you'll see a tremendous amount of interest. “Views will dip a little during the marketing phase, and then before the auction, they will jump back up again.”

She explained that all of the marketing efforts and results are tracked and visible on the seller and broker dashboards that can be accessed online. Sellers can see activity around their listing page, such as the number of total views, unique visitors, how many people have signed confidentiality agreements and visited the document vault and which documents potential purchasers have downloaded.

All marketing outreach is clearly listed on the dashboard showing a picture of the collateral piece, the distribution channel used (email, direct mail or digital marketing), the date it was transmitted and the “reach,” or the number of people to whom each piece was sent.

While the marketing collateral and the property details page are being created, the broker and seller are introduced to the asset manager.

After the listing has been posted online and available to view, the asset manager becomes the primary point of contact for the broker and the seller, serving as “the nucleus in a transaction on our platform,” according to Phamvu. They are not only the point of contact for brokers and sellers, they are also calling and e-mailing all the leads to support the efforts of the broker.

Gathering information. During the marketing period, potential bidders are visiting the document vaults and scheduling property tours with the brokers. If brokers need additional support to follow up on leads, the asset manager will help with this part of the process. They gain information from their conversations with the leads and enter notes and pricing guidance into the dashboard for that listing. The asset manager has access to all of the information on the seller dashboard (and more) and uses this data to stay abreast of all activity relating to the listing.

Asset managers hold a weekly call with the seller and the broker to provide updates and request materials. Early in the marketing period when financial documents or operating statements may still be outstanding, they will raise administrative items like these in the meeting. “But then, as we move deeper into the marketing period, they provide context about the overall listing and what the data represents,” Phamvu said.

Many people see the basic data on the dashboard but don’t understand what it means for the transaction. The asset manager's job is to tie the pieces together by illustrating the marketing done for the property and discussing the results of those efforts such as the number of buyers that have looked at the listing and how many of those are key prospects.

Following up on leads. According to Phamvu, the “leads” tab on the dashboard is the most popular section among brokers and sellers. This is the tab that displays the profile of the people that have visited the listing page.

All the leads are categorized based on their degree of interest. The least interested are considered to be those that have simply signed the confidentiality agreement; the second tier are leads that started to register as a bidder but never finished; the third tier comprises those that completed the registration; while the top tier features approved bidders who have provided proof of funds.

Detailed information about each individual in the above categories can also be accessed, such as the number of times a particular lead has visited the vault, when the initial and most recent downloads occurred and how many documents each lead has downloaded. There is also an extensive buyer profile that provides information such as the proof of funds amount for which each bidder is approved, assets under management, how long ago they created their account with Ten-X, assets previously purchased on the platform and more.

The dashboard also tracks notes entered by the broker and the asset manager after speaking with potential buyers as well as potential asset prices gathered from conversations with interested purchasers. This data enables parties on the seller side to easily access the market’s input about the listing. The seller can access the dashboard at any point and see which leads have or have not been contacted.

Setting expectations. By continuously providing updates, the asset manager is educating sellers and setting expectations, especially as they relate to pricing. Even if a lead is not interested in a property, the asset manager will have a conversation and take the opportunity to collect data. The asset manager will inquire why a lead may or may not be interested, how they are underwriting the deal and what value they are arriving at.

Having this data and information along the way “is a way to help condition [the seller] so that they're not completely surprised when we get to the auction,” Phamvu said. “Because when you get to the auction, [during] the last 20 minutes is when a lot of critical decisions must be made.”

A few days before the auction, the auction manager is introduced to the seller and the broker, and a call is set to discuss logistics for the auction event. Every asset is assigned an auction manager. This individual is an expert on the auction process, auction strategies and how to use the auction dashboard.

During the initial meeting between the auction manager, seller and broker, emphasis is placed on tools available to the auction manager and what can happen on the last day of bidding. “Activity picks up during the last couple of minutes of the auction,” Phamvu said. “In that last 20 minutes, the auction manager, the seller, the broker, the asset manager and the business development director all join a call,” where the auction manager provides a kind of play-by-play, discussing the bidding activity and what the seller’s tactics might be should certain scenarios occur.

For example, as the auction clock is winding down, a seller might find that their reserve price has not been met. The auction manager will discuss the situation with the seller and determine if they should make a counteroffer on behalf of the seller to elicit a higher bid and close the gap between the reserve price and the bid. However, this tactic comes with some risk, because a higher bid may not come in and once the counteroffer has been made, “the buyer who placed the last high[est] bid is no longer obligated to that price,” Phamvu said.

Once reserve has been met, the highest bid submitted before the auction clock runs out wins the asset. At this point, the contracts team will prepare the purchase agreement and send the contract to the buyer through DocuSign. Once the buyer has signed, the purchase agreement is automatically forwarded to the seller for execution. The buyer is sent escrow instructions and given 24 hours to wire the earnest money deposit, which is usually 10% of the purchase price.

After the earnest money deposit is received and escrow is opened, introductions are made between the parties to the transaction and the closing agent. The closing agent is external to Ten-X and is typically an escrow officer with a financial institution. This professional will draft the closing documents, collect and disperse funds and generally ensure -- for both the buyer and seller -- that the transaction was carried out correctly.

Given that the buyer due diligence is completed prior to the sale, the focus at this point is on buttoning up required closing documents such as the deed, assignments, closing statements and invoices. Ten-X assigns an internal closing representative to the transaction to assist the parties and the closing agent to ensure a smooth closing process.